Selling a Home to Escape Debt.
Working to escape from debt can be a nightmare. You’ve likely tried dozens of tricks and followed hundreds of tips to save money and pay down balances, but sometimes skipping a few lattes just doesn’t cut it. Financial hardships affect millions of Americans each year, often at no fault of the individual. Unforeseen medical expenses, student loans, and many other life events can quickly spiral debts and monthly bills out of control. While repayment plans are offered to some it’s not something to rely on.
Sometimes the only way to get to a place free of debt is to part with your biggest source of debt, which for most Americans happens to be their home. While selling isn’t the only avenue to being debt free, there are a number of circumstances in which it makes sense to consider selling a home when in debt.
A huge mortgage payment
Sometimes changes in life circumstances alter our ability to handle expenses that at one point seemed manageable. Perhaps a change in career or the loss of a source of income can make a once affordable mortgage payment into a debt monster.
Most experts agree that your mortgage payment should be no more than 25% of your monthly income. Any more than that and you run the risk of getting buried by your monthly payment amount. Selling your house and buying a cheaper one to cut down on your principal and interest payments can help alleviate financial pressures.
In some situations it may even be better to ditch the mortgage payment all together in favor of an affordable rent for a short period, allowing more of your income to go towards paying off your debts.
Failure to downsize when necessary can leave you behind on your mortgage, and in some situations even facing foreclosure.
Affordability calculators found on the websites of most financial institutions can help you make an educated decision for your situation!
Equity in the home
If you’ve owned your home for a while, and most of that 30 year mortgage has been paid off, or if your home has appreciated in value rapidly over the past few years you have have significant equity available in your property.
If other debts are outweighing your housing spending, and you have equity in the home, it may be beneficial to sell the home for a profit. You can then pay down debts with those profits, using any remainder as a down payment on a new home when the time comes to buy again. Fewer debts and increased credit scores can also help lower interest rates, decreasing your overall monthly expenses!
Another option may be to take out a home equity line of credit, which is based on the difference between the home’s appraised value and the current mortgage debt. This equity line can be used to pay off high interest debt at a low interest rate using your home as collateral. But be sure you can afford the additional cost to your monthly mortgage payment, or you could face losing your home during the loan term.
Sometimes a life change requires you to move anyway such as a new job in a different city. In this circumstances a quick sale allows your capitalize on turning your home’s equity into debt savings. Especially if your new home is going to be in an area with a lower cost of living.
Downsizing while moving to a new city is also a great way to ensure debts decrease, rather than increase. It’s a one-two punch against debt!
Unfortunately, sometimes the best efforts to reduce debt aren’t enough to get above water. The dreaded notice comes in the mail. The bank is going to foreclosure on your mortgage loan and take your home.
While it may not be possible to keep your home, it may be possible to sell it for cash before the foreclosure takes place, satisfying the mortgage balance, and allowing you to potentially walk away with some of the proceeds depending on your equity.
A foreclosure can wreak havoc upon your credit, and it may take as many as 7 years to recover in the best of circumstances. A bad credit score and mortgage foreclosure can make getting a loan for a new piece of real estate next to impossible. Avoiding foreclosure, even if you have to lose some equity in the house may be in your best interest.
When it’s time to sell
When it comes time to sell you can hire a real estate agent to represent you and put your home on the market. They’ll ensure you get top dollar for your sale. However, sometimes a traditional sale on the market requires up front repairs, costly staging, and professional photos. If you are facing financial hardships driven by excess debt, it may not be financially feasible to pay these expenses. If that’s your situation you might consider selling your home as-is to a cash buyer.
A professional cash buyer like Duval Home Buyers pays cash for your home exactly how it sits now, and can even offer your options like post-closing occupancy so you can find a new place to live with the proceeds of your sale without having to worry about having a roof over your head.
Regardless of what you choose to do to reduce debt, speak with a professional to fully weigh your options so you can make the best decision for your situation!